My Bank has Threatened Foreclosure Proceedings – How Much Time do I Have?

Guest Blog Post prepared by Steve Schwartz. Steve is a commercial litigation lawyer at the Kelowna law firm Schwartz & Company. Part of Steve’s practice is dedicated to foreclosure law, representing both lenders and borrowers alike. For more information on the foreclosure process, feel free to call Steve at 250-860-4700.

While foreclosure rates in our province pale in comparison to those of our neighbours to the south, British Columbia has seen a marked increase in foreclosure activity since late 2008. In fact, when speaking with an experienced local realtor, he advised me that approximately 8% of all local properties currently listed for sale on the Multiple Listing Service are in foreclosure.

The most common question I am asked when contacted by a homeowner who has received a demand letter from their bank is “how much time do I have before I must vacate my home?” You might find the answer surprising.

By way of background, after a lender issues demand due to a mortgage default, its first step in the court process is to apply for a court order known as an “order nisi”. During the order nisi hearing the court will, among other things, set something known as a “redemption period”. The redemption period is the amount of time the homeowner has to pay out the bank (which is usually accomplished either through a sale of the property, or refinancing through another lender). In British Columbia, courts have typically set the redemption period for residential foreclosures at six months. This is deemed to be enough time for a borrower to obtain alternate financing, or complete a sale of the property.

However, when certain circumstances are present, a court can reduce the redemption period to three months, one month, or even one day. The redemption period is generally reduced in situations where there is a lack of equity in the property (in other words, where there is a significant risk that if the property is sold, there will not be enough money to pay out the bank). Additionally, the redemption period can be shortened in situations where the property has been abandoned by the homeowner.

Prior to late 2008, I would routinely dispense advice to homeowners facing foreclosure proceedings that they are likely to receive a six-month redemption period by the court. However, that has drastically changed over the past couple of years. A combination of high ratio financing, the proliferation of second mortgages, and significant drops in property values have left many homeowners with little or no equity in their property.

Consider the following example: a couple purchases a house in 2007 for $500,000. After coming up with a 20% down payment, they borrow $400,000 from their bank. In 2011, they default on their mortgage. Due to the decline in the market, their house is now only worth $420,000. After accounting for the bank’s legal fees, real estate commission, and perhaps some unpaid property taxes, there will not be enough money left after a court-ordered sale to satisfy the bank. In such case, a court is likely to order a redemption period in the range of one day to one month.

In short, should you be faced with a demand letter from a bank, the amount of time you have to satisfy the debt will primarily depend on the value of your home, and the amount still owing to the bank.

Steve Schwartz is a commercial litigation lawyer at the Kelowna law firm Schwartz & Company. Part of Steve’s practice is dedicated to foreclosure law, representing both lenders and borrowers alike. For more information on the foreclosure process, feel free to call Steve at 250-860-4700.